Fibe

As per the Income Tax Act, your income gets categorised into different heads, no matter the amount you earn. But ‘how many heads of income are there?’ is the question here.
The IT Act clearly outlines five heads of income, which classify earnings based on their sources. 

All citizens liable to pay tax must abide by the rules of taxation based on their income categorisation. Given this, knowing the different heads of income under the IT Act is crucial. It helps ensure that you file taxes correctly. Read on for insights into these heads and to understand what they entail. 

What are the 5 Heads of Income?

Here is an explanation of all heads of income for your understanding. 

• Salary Head: Income earned through employment is known as Salary Head. This can include all types of wages, bonuses or advances received from an employer by the employee. It also accounts for the wages from pension. 

• House Property Head: It refers to all the income received from the rental income of the house or property. Self-occupied property is when you have more than one property, even if it is not used for rent purposes. 

• Profits and Gains from Business Head: The income received from profits or gains from being self-employed or owning a business. If you are gaining profit from partnerships with other businesses, you fall under this category.

• Capital Gains Head: If you have recently sold any property, land, mutual funds, bonds, gold, etc., you have gained capital. This is also known as investment head, as you are owning and selling the asset. 

• Other Sources Head: If the income you have is not included in all the above categories, it is a part of other categories. It can include interests gained from a savings account or a lottery win. 

Income From Salary

The salary head of income tax is one of the 5 heads, which is income received as a contractual agreement between you and your employer. As per the agreement, you will receive a certain amount of remuneration for your services. The gross income includes the following components:

• Basic wage
• Annuity
• Pension
• Annual bonus 
• Gratuity
• Commission 
• Leave encashment 

This total amount is taxable under the tax head on income from salary. Under this tax head, you can claim the following tax deductions. 

• House Rent Allowance (HRA): If you live in a rented house, you can claim HRA, 50% of your basic salary, or monthly rent. It will be minus 10% of the annual salary, whichever is lower
• Conveyance Allowance: This is the compensation for the cost of travelling, captured as ₹1,600 per month
• Medical Allowance: You can claim tax exemption of up to ₹15,000 for covering medical expenses for yourself and your family 

Also Read : How to pay income tax online

Income From House Property

When an individual earns income for income from their property, it is taxable under the tax head of income from house property. Sections 22 to 27 of the IT Act, 1961 provide the required details on what classifies as property, computation and calculation of rental income. 

However, this tax head has certain conditions. The taxpayer must own the property that must be used for residency purposes. 

Income From Profits and Gain of Business or Profession

Any income generated from business or profession falls under this tax head, which includes:

• Income generated from the sale of a certain licence
• Total gains of an individual during the particular assessment year
• Profit of an organisation 
• Grant received as a part of a government scheme
• Gains, bonuses or salary revives under a partnership 

Income From Capital Gains

If you earn income from the transfer or sale of a capital asset held as an investment, this is capital gain. An asset can be any asset class, such as stock, bonds, mutual funds, gold, and property, among others, held for 36 months or more. 

They are further divided into short-term capital gains and long-term capital gains, having variable tax rates. To claim deductions, you can refer to sections 54, 54B, 54D, 54EC, 54ED, 54F, 54G, or 54GA of the Income Tax Act. 

Income From Other Sources

This is the last of the income tax heads, and it includes all the other types of income that are not mentioned in the other categories. Section 56 of the Income Tax Act outlines the specifics. This tax head income earnings from: 

• Gifts
• Lottery
• Bank deposits
• Card games
• Gambling
• Bank deposits

Also Read: Tax Free Income in India

This list isn’t exhaustive, and other sources fall under this income head.  

Knowing how many heads of income are there under the Income Tax Act of 1961 is important information for tax planning. It helps calculate your tax liabilities accurately and avoid mistakes when claiming deductions. Thankfully, you can rely on a digital calculator to estimate your tax outgo with ease. 

Digital solutions like these simplify complex financial processes greatly. This is also true when you need funds, as you can get an Instant Personal Loan online from Fibe. Here, you can get up to ₹5 lakhs for all your financial requirements, all through a completely digital process. 

You get a competitive interest rate, flexible tenure of up to 36 months, and a simplified application process, which makes it easy to get. You also enjoy swift disbursal in two minutes, making it a viable option even in an emergency. Download our Loan App on your smartphone, or simply visit our website to get started. 

FAQs on Heads of Income

How many heads of income tax are classified?

There are five heads of income under the Income Tax Act of 1961: 

• Income from salary
• Income from house property
• Income from profits and gain of business or profession
• Income from capital gains
• Income from other sources

What is the difference between heads of income and sources of income?

The heads are classifications of earnings or gains of an individual within a year, such as:

• Income
• Rental Income
• Capital gains
• Profits from investments
• Profits from the profession 

On the other hand, sources of income are monetary sources that differ for an individual or business. Thus, salary, commission, interest, etc., can be a source of income for an individual. However, profits, return on Investments, and grants from the government are examples of a source of income for a business. 

What type of income is commission classified as?

Commission or brokerage is the sum of an individual or agent receiver when acting on behalf of another individual or entity. Simply put, it’s part of the payment for non-professional services or the sale or purchase of any goods. 

Can I claim a deduction of expenses incurred to earn Income from Other Sources?

Yes. A deduction is claimed on any other expense incurred to earn Income from other sources that has been only spent for gaining income in previous financial year.

How many heads of income tax are classified?

As per the classification, a total of 5 heads of income are there. This includes salary head, house property, capital gains, gains from business, and other gains.

Do I have to pay tax on gifts (income from other sources) if received on the occasion?

Yes, if you receive any gift in a financial year, it will be included in your income from other source heads. However, the inclusion has a limit of ₹50,000.

The taxable income slabs divide the taxpayers into different categories and assign them different tax rates. These categories depend on the age of the taxpayers, as mentioned below:

• Individuals under 60 years and all the non-residents 
• Resident senior citizens, which includes taxpayers over 60 years to up to 80 years
• Resident super senior citizens consisting of taxpayers over 80 years of age

These slabs also vary depending on the regime you opt for. By knowing these slabs and the applicable rates, you can plan your finances and taxes accordingly. 

Read on to know the tax slabs for income tax under the old and new regimes, tax rates and more. 

Tax Slabs for FY 2024-25

You can opt for the old regime or the new regime based on your income and investments. As per the Union Budget 2024, the government announced the revised taxable income slabs for the new tax regime. The rates for the old and new tax slab of income tax are as follows. 

Tax Rates for the Old Tax Regime 

The traditional system for tax filing allows for various deductions and exemptions. Check out the tax structure and applicable rates under the old tax regime below-

Income Slabs	Rates for Taxpayers up to 60 Years & NRIs	Rates for Taxpayers over 60 Years and up to 80 Years	Rates for Taxpayers Above 80 Years
Up to ₹2.5 lakhs	Nil	Nil	Nil
Between ₹2.5 lakhs and ₹3 lakhs	5%	Nil	Nil
Above ₹3 lakhs and less than ₹5 lakhs	5%	5%	Nil
Between ₹5 lakhs and ₹10 lakhs	20%	20%	20%
₹10 lakhs and above	30%	30%	30%

Also Read: Calculation Of Tax

For taxpayers with income exceeding a certain threshold, other tax rates known as surcharges will also apply under the old tax regime. The applicable rates are as follows-

Range of Income	Surcharge rate
Up to ₹50 lakhs	Zero
Between ₹50 lakhs and ₹1 crore	10%
Between ₹1 crore and ₹2 crores	15%
Between ₹2 crores and ₹5 crores	25%
Above ₹5 crores	37%

Tax Rates for the New Tax Regime 

The Union Budget 2024-25 proposed a revision of tax rates under the new taxation system. Check out the revised tax structure and slab rates below-

Income Slabs	Rate for All Taxpayers
Up to ₹3 lakhs	Nil
Between ₹3 lakhs and ₹7 lakhs	5%
Between ₹7 lakhs and ₹10 lakhs	10%
Between ₹10 lakhs and ₹12 lakhs	15%
Between ₹12 lakhs and ₹15 lakhs	20%
₹15 lakhs and above	30%

The following are the surcharge rates applicable under the New Tax Regime-

Income Slab	Tax Rates
Above ₹50 lakhs and less than ₹1 crore	10% of the net income
Above ₹1 crore and below ₹2 crores	15% of the net income
₹2 crores and above	25% of the net income

Who Can Opt for the Old and New Tax Regime? 

The slab of income tax in India also depends on the nature of your income. Here’s how taxpayers can choose between the old and new tax regimes. 

Nature of Income	Regime Applicable
Salary Income or Any Other Income Attracting TDS	Employees have the option to choose the regime at the beginning of the financial yearIf they don’t have a preference, the new regime appliesTaxpayers cannot change the regime in the middle of the financial yearThey have the option to shift to the old regime at the beginning of the next financial year
Income from Business and Profession	Taxpayers with business or professional income can only choose the regime once

Knowing these tax slabs and rates helps you choose the right regime and optimise your tax payable to save more. You can invest in tax-saving avenues and make the most of deductions available under various sections in both regimes. 

If you need assistance for financial emergencies or planned expenses, you can opt for a Fibe Instant Cash Loan. You can easily avail of up to ₹5 lakhs at a comfortable interest rate. With an easy application process, minimum document requirements and zero foreclosure charges, you can enjoy a hassle-free experience. 

Download the Personal Loan App or visit our website to get started. 

FAQs on Income Tax Slabs

What is the new income tax slab for FY 2024-25?

As per the Union Budget 2024, you are not liable to pay tax under the old tax regime if your net annual income is below ₹2.5 lakhs. It is extended to ₹3 lakhs in case of individuals between 60 – 80 years and to ₹5 lakhs for individuals above 80 years. The basic exemption limit from taxation under the new tax regime is ₹3 lakhs. 

Here are the tax slabs and rates for both regimes:

Old Tax Regime		New Tax Regime
Tax Slab	Tax Rate	Tax Slab	Tax Rate
Up to ₹2.5 lakhs	Nil	Up to ₹3 lakhs	Nil
Between ₹2.5 lakhs and ₹3 lakhs	5%	Between ₹3 lakhs and ₹7 lakhs	5%
Above ₹3 lakhs and less than ₹5 lakhs	5%	Between ₹7 lakhs and ₹10 lakhs	10%
Between ₹5 lakhs and ₹10 lakhs	20%	Between ₹10 lakhs and ₹12 lakhs	15%
₹10 lakhs and above	30%	Between ₹12 lakhs and ₹15 lakhs	20%
		₹15 lakhs and above	30%

Is filing income tax returns compulsory?

Yes, all individuals above 18 years with taxable income must file their returns and pay taxes, if applicable. 

Is there any standard deduction for FY 2024-25?

All individuals can claim standard deductions up to ₹50,000 under the old regime and ₹75,000 under the new tax regime for FY 2024-25. 

Every taxpayer who is required to pay income tax or file an Income Tax Return (ITR) must comply with the applicable tax rules. After a return is filed, the Income Tax Department may process or examine the details to determine the correct income, deductions, tax liability or refund. This process is broadly known as income tax assessment. 

From 1 April 2026, the Income-tax Act, 2025 replaced the Income-tax Act, 1961. It also replaced the earlier concepts of “previous year” and “assessment year” with the simpler concept of a tax year for Tax Year 2026–27 onward. However, returns and proceedings relating to FY 2025–26/Assessment Year 2026–27 and earlier years continue to be governed by the Income-tax Act, 1961 under the transitional provisions. 

Understanding the different types of assessment in income tax can help you respond correctly if your return is processed, selected for scrutiny, reopened or examined following a search. 

Read on to understand the procedure of assessment in income tax, the role of the Assessing Officer and the major assessment types applicable in 2026. 

Meaning of Income Tax Assessment 

An income tax assessment is the process through which the Income Tax Department processes, examines or determines a taxpayer’s income, loss, tax payable or refund based on the return and other available information. 

Under the new Income-tax Act, 2025, a person liable to pay tax or another sum under the Act, or a person in respect of whom specified tax proceedings are undertaken, is known as an assessee. 

Under the earlier Income-tax Act, 1961, the term “assessee” was defined under Section 2(7). Under the Income-tax Act, 2025, which applies to Tax Year 2026–27 onward, the corresponding definition is contained in Section 2(11). 

An assessee can include: 

• An individual 

• A company 

• A firm 

• A Hindu Undivided Family 

• An Association of Persons 

• Another person liable to tax 

• A person treated as an assessee or assessee in default under the law 

What Does “Whether Assessed to Tax” Mean? 

If a form asks “whether assessed to tax”, the meaning generally relates to whether the person has previously come within the income-tax assessment or compliance framework. 

Being assessed to tax does not necessarily mean that additional tax was ultimately payable. An assessment may also result in acceptance of the returned income or a refund. 

Who Is an Assessing Officer? 

An Assessing Officer (AO) is an authorised income-tax official responsible for exercising assessment-related powers within the jurisdiction assigned to them. 

Under the Income-tax Act, 2025, the definition is contained in Section 2(12). Depending on the assigned jurisdiction and powers, an Assessing Officer can include an: 

• Assistant Commissioner 

• Deputy Commissioner 

• Assistant Director 

• Deputy Director 

• Income-tax Officer 

• Additional Commissioner 

• Joint Commissioner 

• Other specified authorised officer 

An Assessing Officer may perform functions such as: 

• Examining tax returns 

• Issuing notices 

• Asking for supporting documents or information 

• Conducting scrutiny proceedings 

• Determining taxable income or loss 

• Reassessing escaped income 

• Passing applicable assessment orders 

Many assessment proceedings are now conducted electronically through the faceless-assessment framework. The Income Tax Department has confirmed that the existing faceless assessment system continues under the Income-tax Act, 2025. 

Types of Income Tax Assessment Under the Income Tax Act 

For 2026, it is useful to distinguish between the old section numbers applicable to earlier assessment years and the corresponding framework under the new Income-tax Act, 2025. 

Type of Assessment	Income-tax Act, 2025	Earlier Income-tax Act, 1961
Self-Assessment	Section 266	Section 140A
Summary Assessment	Section 270(1)	Section 143(1)
Scrutiny/Regular Assessment	Section 270(8) & 270(10)	Sections 143(2) & 143(3)
Income Escaping Assessment/Reassessment	Sections 279–286	Sections 147–151
Best Judgment Assessment	Section 271	Section 144
Search/Block Assessment	Sections 294–296	Earlier search/block-assessment provisions
Protective Assessment	Judicially recognised; no specific section	Judicially recognised; no specific section

1. Self-Assessment – Section 266 

Self-assessment is the taxpayer’s own calculation of income and tax liability before filing the return. 

You generally calculate: 

• Total taxable income 

• Applicable income tax 

• Surcharge and cess, where applicable 

• Interest or fees, where applicable 

You then reduce eligible amounts already paid or credited, such as: 

• TDS 

• TCS 

• Advance tax 

• Eligible tax credits or reliefs 

If a balance remains payable, it must generally be paid before furnishing the return. 

Under the Income-tax Act, 2025, Section 266 governs self-assessment. It requires an assessee to pay the applicable tax, interest and fee before furnishing the relevant return where an amount remains payable. 

For earlier years governed by the Income-tax Act, 1961, the corresponding provision is Section 140A. 

2. Summary Assessment – Section 270(1) 

A summary assessment is primarily an automated processing of the income-tax return. 

The system may check issues such as: 

• Arithmetical errors 

• Incorrect claims apparent from the return 

• Inconsistencies within the return 

• Applicable tax payments 

• TDS and TCS credits 

• Tax payable or refund due 

Before certain adjustments are made, the assessee must be informed and given an opportunity to respond. 

An intimation is then issued showing: 

• Tax payable 

• Refund due 

• Adjustments made, if any 

Under the Income-tax Act, 2025, this return-processing mechanism forms part of Section 270(1). 

No intimation under this processing provision can generally be sent after nine months from the end of the financial year in which the return was filed. 

For earlier assessment years, the corresponding provision is Section 143(1) of the Income-tax Act, 1961. 

3. Scrutiny Assessment – Section 270 

A scrutiny assessment involves a more detailed examination of the return. 

It may be undertaken to ensure that the taxpayer has not: 

• Understated income 

• Computed an excessive loss 

• Underpaid tax 

• Claimed deductions or exemptions incorrectly 

Under the Income-tax Act, 2025, the Assessing Officer can issue a scrutiny notice under Section 270(8) where a return has been furnished and further examination is considered necessary. 

The taxpayer may then be asked to provide documents or evidence supporting the return. 

These may include: 

• Bank statements 

• Books of account 

• Investment records 

• Income documents 

• Expense records 

• Deduction-related evidence 

• Other supporting information 

A scrutiny notice under Section 270(8) generally cannot be served after three months from the end of the financial year in which the return was furnished. 

After considering the evidence and other relevant material, the Assessing Officer can pass an assessment order under Section 270(10) determining the total income or loss and the tax payable or refund due. 

For earlier years, these functions broadly correspond to Sections 143(2) and 143(3) of the Income-tax Act, 1961. 

Regular Assessment: The earlier draft treated regular assessment as a separate assessment type. It substantially overlaps with scrutiny assessment, so it is included within this section instead of being repeated separately. 

4. Income Escaping Assessment or Reassessment – Section 279 

An income escaping assessment applies when the Income Tax Department has information suggesting that income chargeable to tax has escaped assessment. 

Under the Income-tax Act, 2025: 

• Reassessment is undertaken under Section 279 

• The reassessment notice is issued under Section 280 

• The pre-notice procedure is generally governed by Section 281 

Before issuing a reassessment notice, the Assessing Officer generally needs to: 

1. Have information suggesting that income has escaped assessment 

2. Give the assessee an opportunity to respond through a show-cause notice 

3. Consider the response 

4. Pass a reasoned decision, with the required approval 

5. Issue the reassessment notice if the case is considered fit for reopening 

Income may be considered to have escaped assessment in situations involving information such as: 

• Undisclosed income 

• Incorrect or excessive claims 

• Information identified under the Department’s risk-management strategy 

• Audit objections 

• Information received from foreign jurisdictions 

• Court or Tribunal findings 

• Information obtained during specified surveys 

Time Limit for Reopening 

The earlier proposed wording referring to three years and ₹1 lakh should not be used for the current 2026 law. 

Under Section 282 of the Income-tax Act, 2025, a notice under Section 280 can generally be issued: 

• Within 4 years and 3 months from the end of the relevant tax year 

• Between 4 years and 3 months and 6 years and 3 months only where the escaped income is or is likely to be ₹50 lakh or more, subject to the specified evidence conditions 

A reassessment notice generally cannot be issued within one year from the end of the relevant tax year. 

For tax periods beginning before 1 April 2026, the older provisions under Sections 147–151 of the Income-tax Act, 1961 continue to apply. 

5. Best Judgment Assessment – Section 271 

A Best Judgment Assessment may arise when a taxpayer does not fulfil certain statutory requirements. 

For example, it may apply where a person: 

• Fails to furnish the required return 

• Fails to comply with an information or assessment notice 

• Does not comply with a direction relating to a special audit or valuation 

• Files a return but fails to comply with a scrutiny notice 

In such circumstances, the Assessing Officer can use the information and material available to determine the assessee’s income or loss to the best of their judgment. 

The taxpayer is ordinarily given an opportunity to be heard before such an assessment is completed. 

Under the Income-tax Act, 2025, Best Judgment Assessment is governed by Section 271. 

For earlier assessment years, the corresponding provision is Section 144 of the Income-tax Act, 1961. 

6. Assessment in Case of Search – Block Assessment Under Section 294 

The requested Section 153A reference relates to an older search-assessment framework and should not be presented as the current provision for Tax Year 2026–27 onward. 

Under the Income-tax Act, 2025, assessment following an eligible search or requisition is dealt with through the block-assessment framework, including Sections 294–296. 

A search may involve examination of undisclosed income detected through: 

• Seized documents 

• Books of account 

• Money 

• Bullion or jewellery 

• Virtual digital assets 

• Other assets or information obtained during the search 

The applicable block period and undisclosed income are assessed under the special search-assessment framework. 

The current time limit under Section 296 generally requires a block assessment order under Section 294 to be completed within 18 months from the end of the quarter in which the search was initiated or requisition was made, subject to applicable extensions and exclusions. 

For searches and proceedings relating to periods governed by the repealed Income-tax Act, 1961, the applicable older search provisions continue to operate under the transitional rules. 

Protective Assessment 

A Protective Assessment is different from the statutory assessment types discussed above. 

There is no separate section in the Income-tax Act defining a Protective Assessment. Instead, it is a judicially recognised practice used where the Department believes certain income is taxable but there is genuine uncertainty about which person should ultimately be assessed on that income. 

For example, if the same income may legally belong to either Person A or Person B, assessment proceedings may be undertaken protectively to ensure that the income does not escape taxation because of limitation issues. 

Courts have recognised the concept of protective or precautionary assessment. However, protective recovery is different from protective assessment, and tax cannot simply be recovered twice on the same income. 

Once it is finally established who is liable, the substantive assessment determines where the tax is ultimately payable. 

Time Limit for Completing an Income Tax Assessment 

Different assessment proceedings have different statutory time limits. 

For Tax Year 2026–27 onward under the Income-tax Act, 2025, some important timelines include: 

Assessment/Action	General Time Limit
Summary intimation under Section 270(1)	9 months from the end of the financial year in which the return is filed
Scrutiny notice under Section 270(8)	3 months from the end of the financial year in which the return is furnished
Regular/Scrutiny assessment under Section 270(10)	Generally 1 year from the prescribed reference date under Section 286
Best Judgment Assessment under Section 271	Generally 1 year from the prescribed reference date under Section 286
Reassessment under Section 279	Generally 1 year from the end of the financial year in which the Section 280 notice was served
Search/Block Assessment under Section 294	Generally 18 months from the end of the quarter in which the search was initiated or requisition made

Section 286 provides the principal completion timelines for regular assessments, best judgment assessments and reassessments, while Section 296 provides the special timeline for block assessments. 

These periods can be extended or certain periods can be excluded in specified circumstances, such as: 

• Court stays 

• Transfer pricing references 

• Special audits 

• Valuation references 

• International exchange of information 

For Assessment Year 2026–27 and earlier years, the timelines under the Income-tax Act, 1961 continue to apply. 

Penalty for Late or Non-Filing of Income Tax Return 

Failing to file an ITR by the applicable due date can lead to additional costs and other consequences. 

Under the Income-tax Act, 2025, Section 428 provides for a late-filing fee where a person required to furnish a return does not do so within the prescribed due date. 

The fee is generally: 

Total Income	Late-Filing Fee
Up to ₹5 lakh	Up to ₹1,000
Above ₹5 lakh	₹5,000

Depending on the circumstances, delayed filing can also result in: 

• Interest on unpaid tax 

• Restrictions relating to certain losses 

• Delay in receiving a refund 

• Additional tax where an updated return is filed 

• Further consequences in cases involving wilful non-compliance 

For Assessment Year 2026–27 and earlier periods governed by the old Act, the corresponding late-return fee continues under Section 234F of the Income-tax Act, 1961. 

Filing your return accurately and responding to Income Tax Department notices within the prescribed timelines can help reduce the risk of additional tax, interest, fees or prolonged assessment proceedings. 

If you need funding for an eligible personal requirement, you can also explore a Fibe Instant Personal Loan of up to ₹10 lakh, subject to eligibility, verification and approval. Fibe currently offers repayment tenures of up to 36 months on eligible personal loans. 

Download the Fibe Personal Loan App or visit the website to check your eligibility. 

FAQs On Income Tax Assessment 

1. What Is the Assessment of Tax Under the Income Tax Act? 

Income tax assessment refers to the processing, examination or determination of the income, loss, tax liability or refund of an assessee. 

Depending on the circumstances, this can range from automated return processing to detailed scrutiny, reassessment or a special block assessment following a search. 

2. What Is Regular Assessment in Income Tax? 

Regular assessment generally refers to a detailed assessment carried out after a return is selected for examination. 

Under the Income-tax Act, 2025, a scrutiny notice can be issued under Section 270(8) and the Assessing Officer can subsequently pass an assessment order under Section 270(10). 

The officer can examine whether the taxpayer has: 

• Understated income 

• Computed excessive losses 

• Underpaid tax 

This is why regular assessment and scrutiny assessment should not be treated as completely separate categories in this article. 

3. What Do You Mean by Scrutiny Assessment? 

Scrutiny assessment is a detailed examination of an income-tax return and supporting information by the Income Tax Department. 

For Tax Year 2026–27 onward, the scrutiny framework is contained in Section 270 of the Income-tax Act, 2025. 

For earlier years governed by the Income-tax Act, 1961, the familiar provisions are Sections 143(2) and 143(3). 

4. What Is a Faceless Tax Assessment? 

A faceless assessment is an assessment conducted electronically without requiring routine face-to-face interaction between the taxpayer and the Assessing Officer. 

Communication, submission of documents and other parts of the assessment can take place through the Income Tax e-Filing Portal and designated electronic systems. 

The Income Tax Department has confirmed that the faceless-assessment framework continues under the Income-tax Act, 2025. 

5. Who Is an Assessing Officer in Income Tax? 

An Assessing Officer is an authorised Income Tax Department official who exercises assessment powers for cases falling within their assigned jurisdiction. 

Under the Income-tax Act, 2025, Section 2(12) includes specified officers such as Assistant Commissioners, Deputy Commissioners and Income-tax Officers, as well as certain other officers when appropriately authorised. 

6. What Does the Term ‘Assessee’ Mean Under the Income Tax Act? 

An assessee is broadly a person who is liable to pay tax or another sum under the Income-tax Act or a person in respect of whom specified assessment proceedings have been taken. 

For periods governed by the Income-tax Act, 1961, the definition appears in Section 2(7). 

For Tax Year 2026–27 onward under the Income-tax Act, 2025, the definition appears in Section 2(11).

This article explains the gratuity exemption limit under Indian income tax law, who qualifies for full or partial exemption, and the exact formulas used to calculate gratuity tax for government employees, private employees and those not covered under the Gratuity Act. 

Gratuity is taxable only beyond a ₹20 lakh limit. Under Section 10(10) of the Income Tax Act, 1961, this is the gratuity tax exemption limit available to private-sector employees covered under the Payment of Gratuity Act, 1972. Government employees get a full tax exemption on gratuity, no matter the amount. This guide breaks down the current gratuity exemption limit, who qualifies, the governing law and the exact formula used to work out tax on gratuity, so you know precisely what you owe and what you keep. 

QUICK STAT 

The gratuity tax exemption limit was raised from ₹10 lakhs to ₹20 lakhs to reflect rising salary levels among Indian employees.  (Source: Payment of Gratuity Act, 1972 (as amended)) 

What is Gratuity? Meaning and Eligibility 

Gratuity is a lumpsum benefit your employer pays you over and above your regular salary, as a reward for long, continuous service. The Payment of Gratuity Act, 1972 governs this benefit for any establishment with 10 or more employees, and it kicks in once you complete 5 continuous years with that employer. 

There’s one important exception worth flagging early: if an employee dies or becomes disabled due to an accident or disease, the 5-year condition is waived entirely. The gratuity becomes payable immediately, regardless of tenure. 

You become eligible to receive gratuity in 3 situations: 

1. Superannuation, meaning you’ve reached the retirement age set by your employer 

2. Retirement or resignation, after completing 5 years of continuous service 

3. Death or disablement of the employee, with no minimum service requirement 

Tax Liability on Gratuity 

Here’s the part most people get wrong: gratuity isn’t automatically tax-free just because it’s a retirement benefit. Under the Income Tax Act, 1961, gratuity becomes taxable once it crosses a specific threshold, and that threshold depends on which category of employee you fall under. 

The exemption limit itself has changed over the years. It stood at ₹10 lakhs for a long stretch, and the government later revised it upward to ₹20 lakhs, recognising that rising salaries meant the old cap was taxing ordinary retirement payouts. 

Aspect	Details
Governing Section	Section 10(10), Income Tax Act, 1961
Current Exemption Limit	₹20 lakhs (revised upward from ₹10 lakhs)
Employee Categories	Government employees; private employees covered under the Gratuity Act; employees not covered under the Gratuity Act
Tax Head	‘Salaries’ for the employee; ‘Income from Other Sources’ if paid to a nominee or legal heir

Gratuity Tax Rules 

A few specific rules govern how gratuity gets taxed in practice: 

4. In cases of retirement, resignation, death and a few other defined situations, gratuity may be exempt from tax under Section 10(10) of the Income Tax Act, 1961 

5. Gratuity received by an employee during their working life is taxed under the ‘Salaries’ head 

6. If the employee passes away, the gratuity is paid out to their nominee or legal heir instead 

7. That payout to a nominee or legal heir is classified differently for tax purposes — it falls under ‘Income from Other Sources’ 

Is Gratuity Taxable on Resignation? 

This is where things diverge sharply by employer type. Government employees get full tax exemption on gratuity whether they retire or resign — no upper limit applies. Private-sector employees, on the other hand, get a tax exemption capped at ₹20 lakhs under Section 10(10), regardless of whether they retired or resigned. 

WATCH OUT 

The ₹20 lakh exemption is a lifetime aggregate, not a per-employer limit. If you’ve already used part of it on a previous job’s gratuity, any new payout counts against the same ceiling. 

If your total gratuity across your career exceeds ₹20 lakhs, the excess gets added to your taxable income and taxed at your applicable income slab rate. 

What is the Gratuity Exemption? 

Gratuity exemption is the portion of your gratuity receipt that the Income Tax Act lets you keep tax-free. Under Section 10(10), the rules split into three distinct employee categories, and which one you fall into changes your exemption calculation entirely: 

8. Government employees, who receive full tax exemption regardless of the amount 

9. Private employees covered under the Payment of Gratuity Act, 1972, who can claim exemption up to ₹20 lakhs 

10. Employees not covered under the Payment of Gratuity Act, who follow a separate, more conservative formula explained further below 
     

Knowing which bucket applies to you is the single most useful thing you can do before estimating your tax outgo on retirement or resignation. 

Income Tax Exemption on Gratuity: Category-wise Rules 

Exemptions for Government Employees 

If you work in any of the following government services, your gratuity is fully exempt from tax on termination, retirement, superannuation or disablement: 

11. Central Government 

12. State Governments 

13. Defence Sector 

14. Civil Services 

15. Local Municipal Authorities 

Also read: Difference between direct tax and indirect tax 

Exemption for Private Employees 

If you work in the private sector and your employer is covered under the Payment of Gratuity Act, 1972, your exemption is capped at ₹20 lakhs in aggregate. A few specifics to keep in mind: 

16. The aggregate gratuity you receive across your entire career must not exceed ₹20 lakhs to claim full exemption 

17. This limit applies cumulatively, not per employer, so gratuities from multiple jobs all count towards the same ceiling 

18. Any gratuity paid for service beyond 15 days for each completed year becomes taxable 

19. Salary, for this calculation, includes only your basic pay and dearness allowance (DA), nothing else 

PRO TIP: Quick formula: Gratuity = Last drawn salary x 15 x number of completed years of service / 26. The ’26’ assumes a 26-day working month, since, 4 Sundays are excluded. 

 
Suppose Ayush, a marketing manager in Bengaluru, retires after 12 years of continuous service with a last-drawn basic salary plus DA of ₹50,000. His gratuity works out to ₹50,000 x 15 x 12 / 26, which comes to approximately ₹3,46,154. Since this comes under the ₹20 lakh exemption limit, the entire amount is tax-free in Ayush’s hands. 

Note that you can also use an online gratuity calculator to verify this figure instantly, particularly useful if your service period includes partial years. 

Gratuity Tax Exemption for Employees Not Covered Under the Gratuity Act 

Not every employer falls under the Payment of Gratuity Act, 1972 — smaller establishments with fewer than 10 employees, for instance, may pay gratuity voluntarily without being legally bound by the Act. If you fall into this category, a different and slightly less generous formula applies. 

For employees not covered under the Act, the gratuity exemption is the least of the following three amounts: 

1. ₹20 lakhs (the statutory ceiling) 

2. The actual gratuity received 

3. Half a month’s average salary for each completed year of service, calculated using the average of your last 10 months’ salary 

DID YOU KNOW? 

Formula for employees not covered under the Act: Gratuity = Average salary of last 10 months x 1/2 x number of completed years of service. 

Let’s say Priya, a senior associate in Pune, worked for an 8-employee firm for 9 years. Her average monthly salary over the last 10 months was ₹40,000, and she received a gratuity payout of ₹2,00,000 on resignation. Her exemption is the least of ₹20 lakhs, the actual ₹2,00,000 received, and ₹40,000 x 1/2 x 9, which is ₹1,80,000. Since ₹1,80,000 is the lowest figure, that’s her tax-free portion — the remaining ₹20,000 gets added to her taxable income. 

This distinction matters because employees at smaller firms often assume the same ₹20 lakh, 15-day formula applies to them. It doesn’t, and getting this wrong can mean an unpleasant surprise at tax filing time. 

By understanding how income tax on gratuity works and which exemption category applies to you, you can plan your retirement payout and tax filing with far more confidence. That said, life doesn’t always wait for your gratuity payout. If you need funds before that happens, you can get an Instant Personal Loan of up to ₹10 lakhs in just 2 minutes on Fibe.  
 
Download the Fibe Personal Loan App or sign up on our website to access quick financing whenever you need it. 

FAQs On Gratuity Exemption Limit 

1.Is gratuity taxable or non-taxable? 

Gratuity is taxable under the Income Tax Act, 1961, but you can claim exemption on receipts up to ₹20 lakhs under Section 10(10), depending on your employee category. 

2.How is gratuity calculated for income tax purposes? 

For employees covered under the Gratuity Act, use: Gratuity = Last drawn salary x 15 x number of years of service / 26. 

3.How many times can the gratuity exemption be claimed? 

There’s no cap on the number of times you can claim it across your career, but the cumulative tax-free amount across all claims cannot exceed ₹20 lakhs. 

4.Is gratuity taxable for government employees upon retirement? 

No. Gratuity paid to government employees on retirement, superannuation or termination is fully exempt from tax, with no upper limit. 

5.What is the gratuity exemption section in the Income Tax Act? 

Section 10(10) of the Income Tax Act, 1961 governs gratuity exemption, currently set at ₹20 lakhs. 

6.Is gratuity a part of CTC taxable? 

Gratuity usually forms part of your CTC, but it isn’t taxed when accrued. It’s only taxed when you actually receive it, and only the amount exceeding ₹20 lakhs gets added to your taxable income. 

7.Is gratuity taxable in India for private sector employees? 

Yes, but only beyond ₹20 lakhs. Private employees covered under the Gratuity Act get exemption up to this limit; anything received above it is taxed as per their income slab. 

8.Is gratuity taxable on resignation before completing 5 years of service? 

Generally, gratuity isn’t payable at all if you resign before completing 5 continuous years, except in cases of death or disablement, where the service condition doesn’t apply. 

9.Is gratuity taxable when received on death or disability? 

Gratuity paid to an employee on disablement is taxed under the same Section 10(10) exemption rules as regular gratuity. If paid to a nominee or legal heir after the employee’s death, it’s taxed under ‘Income from Other Sources’ rather than ‘Salaries’, though the exemption limit still applies. 

As a taxpayer, it is important to know the deadline for income tax filing to avoid penalties and interest that you need to pay on the fine. These dates can help you create and stick to a timeline and sort out your finances.  

Generally, the last date for filing your tax for the financial year is 31st July of the assessment year. However, if you miss the date, you can also file the late returns by the end of December of the same year. 

As such, knowing these dates is important to comply with tax laws and file returns on time. Read on to learn about the last date for income tax return filing for the financial year 2023-24, the date for filing advance tax, and other details. 

Income Tax Filing Due Dates for FY 2023-24 (AY 2024-25)

Here is a list of the income tax filing dates for different categories of taxpayers. 

Due Date	Taxpayer Category
31st July 2024	Individual, Hindu Undivided Family (HUF), Association of Persons (AOP) and Body of Individuals (BOI)
31st October 2024	Businesses (with tax audit report)
30th November 2024	Businesses filing for ITR requiring transfer pricing reports (in case of international transactions)
31st December 2024	Revised returns
31st December 2024	Belated or late returns
31st March 2027	Updated returns (up to 24 months after the Assessment Year or AY)

Note that for businesses, the income tax audit report due date is 30th September 2024. 

Also Read: Personal Loan Without ITR

Due Dates for Paying Advance Tax for FY 2023-24

Here is the last date for income tax return of advance tax payments. 

Due Date	Nature of Compliance	Payable Tax Amount
15th June 2024	First instalment	15% of tax liability
15th September 2024	Second instalment	45% of tax liability
15th December 2024	Third instalment	75% of tax liability
15th March 2025	Fourth instalment	100% of tax liability
15th March 2025	Presumptive taxation scheme	100% of tax liability

What Happens if You Miss the Due Date?

Here are some consequences you will face when you miss the deadline for income tax filing. 

• You can pay your return along with the late fee and interest charges before 31st December of the financial year
• You will be liable for paying interest at 1% per month on the unpaid tax amount according to Section 234A 
• You are liable to pay a fine of ₹1,000 for a net income of up to ₹5 lakhs and ₹5,000 for a net income exceeding ₹5 lakhs
• You cannot carry forward your losses and offset them against your total income in the subsequent year
• You can also file for ITR U or updated returns if you miss the 31^st December deadline due to some unavoidable reasons

Also Read: Types of ITR Forms in India

Benefits of Filing Income Tax Returns (ITR) on Time

ITR filing on time has many benefits, which are as follows: 

• It allows you to apply for loans quickly, as most lenders require tax returns as proof of income 
• In case of TDS deductions, you can claim a refund for the amount that you paid over your tax liabilities
• It acts as proof of address and income when applying for a visa
• Filing taxes allows you to claim deductions on your investments, such as FDs, insurance premiums, etc.
• It allows you to carry forward your losses from the previous year to claim deductions
• You can avoid paying penalties and interest on your tax returns
• Not filing your taxes is illegal and has many legal implications

To enjoy all these benefits, it’s imperative to file taxes in a timely manner. Doing so also saves you from any last-minute hassle and reduces the chances of making any errors in taxation. If you need a loan for a last-minute requirement, including paying taxes, then you can apply for a Fibe Instant Personal Loan. 

You can get up to ₹5 lakhs at pocket-friendly interest rates and a comfortable tenure of up to 36 months. There are also no foreclosure charges, allowing you to repay the loan comfortably. So, download our Personal Loan App or go to our website to apply with a completely digital application process and minimum documentation. 

FAQs on ITR Filing Last Date

Can we file a return after 31st December?

Yes, as per the Union Budget 2022 update, you can file for ITR-U if you miss the last date for income tax returns. This allows you to file a return up to 24 months after the deadline of the relevant assessment year.

What is the last date for filing the ITR for 2023-24?

The deadline for income tax filing for financial year 2023-24 or assessment year 2024-25 is July 31, 2024. If you miss the date, you have the option to file a belated return by December 31, 2024.